Does Apple use steroids to beat 'the law of large numbers'?

Really now, a business writer in the New York Times says Apple's stock price (over 500.00 per share) needs company sales and revenue growth to continue to appreciate.  Even with Apple's incredible sales the 'law of large numbers' says it is harder to grow when the numbers get big. Oooooooo  LMAO!

Here is the rub: Apple is so big, it’s running up against the law of large numbers. Also known as the golden theorem, with a proof attributed to the 17th-century Swiss mathematician Jacob Bernoulli, the law states that a variable will revert to a mean over a large sample of results. In the case of the largest companies, it suggests that high earnings growth and a rapid rise in share price will slow as those companies grow ever large

The 'Law of large numbers' is simply regression toward the mean, and applies to experiments where more and more samples are taken.  The mean of the sample moves closer toward the mean of the population with a larger sample size.  I doubt the original author looked at the New York Stock Exchange in the 1600s.

No no no no no.  It means if the mean height of males in the world is 5-9 (feet and inches), if you take 10 samples (measure 10 men) you might find the mean to be 5-11, but then if you take 100 samples, the mean is 5-10, 1000 samples the mean is 5-9.5 etc. etc.  The larger the number of samples the closer your experiment becomes to measuring the true mean (what ever that is).

This is not applicable to the stock market, or to business sales, unless you are sampling the satisfaction of the world with the IPhone on a 10 point scale.  ROFL!

The TImes (the column is called 'Common Sense', of which this isn't) does it again:

There may be sobering reasons for that. Other companies that have reached the top appear to have been felled by Bernoulli’s law. Cisco Systems held the top position and hit a market capitalization of $557 billion — larger than Apple’s — in March 2000, at the peak of the technology bubble. Its market capitalization today is about $100 billion, and shares are down nearly 80 percent since March 2000. In contrast with Apple, Cisco’s market value and sky-high 120 P/E ratio were inflated by investor euphoria rather than actual results. But other titleholders have met a similarly disappointing fate, although far less drastic.

Cisco was felled by Bernoulli's law?  Oh no, those rascally statistical principles are killing businesses!  Corporate felonies by heinous statisticians!

I 'spose on first blush it makes sense to think once a company is large, it becomes harder to expand, or is it?  Perhaps growth can be exponential rather than numerical?

Will China's population fall to the 'law of large numbers'?  Will there soon be only 300 million Chinese rather than 1.3 billion because of that rat Bernoulli?

Apple sold 37 million Iphones and 15 million IPads last quarter, an increase of roughly 70% measured year to year (revenue).  How many more IPhones can they sell?

There are 7 billion people in the world.  That's alot of customers for IPhones.  Not to mention to damn things quit working or go through the laundry (looking at you LIz).

There are even people who buy a couple computers or tablets (blush) per.

But, alas, even these sales are like steroids -- you get gyne.  Likely the Law of Large Numbers will say that sales to individuals will revert to the mean.  One tablet per human.  Only a potential of 8 billion tablets.

I weep for Apple...lose the steroids Cupertino!

 

 

Comments

[jbincr]

LOL. Exhibit #1 why journalism majors should take at least one stats class. Not that it would probably do any good.

[GRG51]

Or at least call up someone familiar with the scientific method.

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